Insolvency Regulation Reform
The Insolvency Service is still "in listening mode" in relation to its February 2011 Consultation on Reforms to the Regulation of Insolvency Practitioners, according to a presentation on 15 June by its Director of Policy, even though the consultation is officially closed.
That better regulation is required is beyond doubt, but how to achieve it proportionately and cost-effectively, in a way that gives confidence to users of insolvency services and all those affected by insolvency, including the insolvency profession, is the challenge.
Recognising that a single independent regulator is an unattainable ideal, my principal suggestions - and this is a personal opinion - are:
- The Insolvency Service should concentrate on regulating the recognised professional bodies, rather than continuing to regulate a few IPs directly.
- That role should include acting robustly to ensure that the RPBs have entirely consistent systems and approaches to handling complaints, and that those mechanisms can be seen to be independent, technically competent, speedy and effective. In particular the sanctions levied in response to valid complaints must be consistent and should be explained publicly.
- The "super-regulator" role should also be highly visible, demonstrating how each RPB delivers the qualities described above.
- The Insolvency Service should be the public focus for regulation as a single gateway for complaints, which it would pass to the relevant RPBs, and it should publish any adverse findings, explanations and sanctions.
- Creditor participation in the insolvency proceedings is itself a significant and visible regulator protecting creditors' own interests. Being, on average, 25% of unsecured creditors and being more knowledgeable about insolvency than most, HMRC should (as part of joined up government) be obliged to take an active creditor role in formal insolvencies, in part as an encouragement to other creditors to do so.
- IPs should estimate the likely cost of an insolvency procedure at the start and, once the basis of their remuneration has been approved, should not increase their hourly rates without further creditor approval.
- IPs' fees, having been approved by the body of creditors, should not be subject to regulatory review at the behest of a minority of creditors, whose safeguard is the right to use the existing legislative provisions to apply to the court to object about remuneration.
- The proposed three day notice period to creditors for administration business and asset sales to related parties where there has been no marketing must be abandoned. It is too short a period to allow constructive participation and too long to prevent damage in those cases where value is being preserved by the sale. Less than 1% of pre-pack administrations have required regulatory action and this is a sledgehammer to crack a nut. The filing of SIP16 reports at Companies House, their earlier presentation to creditors and more effective regulatory action in the event of inappropriate phoenixism would be appropriate requirements to alleviate the perception that pre-packs are a significant source of mischief.
Date: 16th June, 2011
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